Democrats, Republicans Push for Diverse Governor Experience

WASHINGTON—Senate Banking Committee members from both sides of the aisle are urging President Barack Obama to fill at least one of the vacant seats on the Federal Reserve Board of Governors with an official steeped in community banking experience.

Following the resignation notice last week from Fed Governor Jeremy Stein, senators on the panel are signaling to the White House that they hope to see the president tap a community banker to increase the diversity of experience on the seven-member board, which helps set interest rates and banking regulations.

"It's important that we have a wide array of banking experience, of understanding what's happening in the financial markets—not just from the rarefied air of the hedge funds and large banks—but down to a community bank level," Sen. Heidi Heitkamp (D., N.D.), a member of the banking panel, said in an interview Tuesday.

Ms. Heitkamp is organizing a letter addressed to Mr. Obama encouraging him to replace Mr. Stein with someone who has community banking experience. "It's not always about a Ph.D. It's about some real, practical experience of how this works," she said.

Sens. Mark Warner (D., Va.) and Pat Toomey (R., Pa.), both members of the banking committee, last week sent Mr. Obama a letter encouraging him to consider someone with community banking experience to serve on the Fed board.

"In the past, at least one of the serving Governors of the Federal Reserve has had community banking or community banking supervision experience," the lawmakers wrote in the March 31 letter. They said the departures over the past year of former governors Elizabeth Duke and Sarah Bloom Raskin, who were housing and community banking experts, have left the Fed's board "without this important expertise."

Ms. Duke, an expert in bank regulation and housing finance left the board last summer. Ms. Bloom Raskin, a former commissioner of financial regulation for Maryland, departed last month, when she was confirmed to the No. 2 spot at the Treasury Department.

The White House didn't immediately respond to a request for comment.

GOP Sen. David Vitter of Louisiana is planning to introduce legislation ensuring that the Fed's board has at least one governor with community banking experience, according to his office.

"Fed membership has dramatically shifted away from community bank experience and toward academic and economist experience, despite their greatly expanded role in bank supervision," Mr. Vitter said in a statement Tuesday.

Mr. Stein said last week he planned to leave the Fed in late May to return to his post teaching economics at Harvard University.

The Fed board has three vacancies. Mr. Obama has nominated former Bank of Israel Chief Stanley Fischer and former Treasury Department official Lael Brainard to fill two of the open slots, and Fed Governor Jerome Powell to a new term. The three nominations are pending Senate confirmation. If Mr. Stein leaves before the Senate approves them, the board would have four vacancies—including two without a nominee.

A banking committee aide said the panel will vote on the Fed nominees in "coming weeks." The nominations would then go to the full Senate for approval.

Mr. Fischer and Ms. Brainard are economists, as are Fed Chairwoman Janet Yellen and Mr. Stein. Mr. Powell worked previously in investment banking and private equity. Fed Governor Daniel Tarullo is a lawyer with expertise in banking regulation.

Some Democrats on the banking panel have signaled that settling on a Fed official whose understanding of the financial and regulatory system will keep Wall Street banks in check is a priority.

Sen. Jeff Merkley (D., Ore.) said he hoped to see a Fed nominee focused on preventing predatory practices and keeping an eye out for big banks' conflicts of interest in areas including commodities. While that person could come from any number of backgrounds, "I think it'd also be very good to have somebody from the community banking perspective come on," he said.

The advice from lawmakers on the banking panel is likely to get noticed by the White House. Last year, former Treasury Secretary Lawrence Summers withdrew from consideration to be nominated to lead the central bank after it became clear he faced opposition from both Democrats and Republicans on the committee.